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Ninth Circuit Affirms Dismissal of California Egg Lawsuit

November 18, 2016

Kristine A. Tidgren

I’ve called it the “Hokey-Pokey” law. The California Legislature passed AB 1437 in 2010 to make it a crime to sell a shelled egg in California if that egg came from a hen confined in a cage that did not allow it to “lie down, stand up, fully extend its limbs, and turn around freely” (hence the Hokey-Pokey reference).

The law, which was effective January 1, 2015, stemmed from Proposition 2, a 2008 California ballot initiative requiring all California egg producers to raise their hen-laying eggs in cages allowing them the full range of movement described above. The force behind Proposition 2, which went into effect January 1, 2015, was the Humane Society of the United States, which spent more than $4 million to ensure its passage.

It did not take long for California egg farmers to push their lawmakers to see that Proposition 2 would place them at a competitive disadvantage as compared to egg farmers from other states. The mandated cages were expensive, and California producers would now have to invest in infrastructure not required for other egg producers. Enter AB 1437.

The stated purpose of AB 1437 was to “protect California consumers from the deleterious health, safety, and welfare effects” of egg-laying hens exposed to stress, namely small cages. Governor Schwarzenegger commented when he signed the bill, “By ensuring that all eggs sold in California meet the requirements of Proposition 2, this bill is good for both California egg producers and animal welfare.” He mentioned no health and safety purpose for the law. With the stroke of a pen, California sought to regulate egg production in every egg-producing state.

And that sparked the attention of egg-producing states[i], in addition to many interested in Constitutional Commerce Clause analysis. The Missouri Attorney General initiated a lawsuit in March of 2014 that was joined by the Attorneys General from four other egg-producing states, as well as the Governor of Iowa. The lawsuit alleged that AB 1437 was unconstitutional and preempted by the Federal Egg Products Inspection Act. Article I, section 8, clause 3 of the United States Constitution grants Congress the power to “regulate commerce” among the states. Although the Constitution does not specifically limit a state’s power to regulate commerce, the United States Supreme Court has long interpreted the clause as an “implicit restraint on state authority, even in the absence of a conflicting federal statute.” To determine whether a facially neutral law violates this “dormant” aspect of the Commerce Clause, courts ask whether the law imposes burdens on interstate trade that are "clearly excessive in relation to the putative local benefits.” On its face, AB1437 treats out-of-state producers in the same manner as in-state producers. So, the States have alleged that AB 1437 imposes an excessive burden on interstate commerce in relation to the putative local benefits. The complaint alleged that the actual local benefit is protectionism and that the necessary capital improvements to comply with the new law would cost producers from the represented states “hundreds of millions of dollars.” Compliance by Missouri producers alone is estimated to cost $120 million. If producers choose instead to leave the California market, the lawsuit alleges that many producers would be forced out of business.

No egg producers or egg producer groups were among the plaintiffs. No doubt egg producers themselves may have been concerned about potential negative publicity accompanying their participation in such a lawsuit. The state leaders sought to stand in the place of impacted egg producers and citizens in parens patriae capacity. This is a doctrine under which a state can act as the legal protector (or parent) of its citizens. But this is where the lawsuit failed. In October of 2015, a federal judge dismissed the case out of hand before reaching the merits. She found that the plaintiffs lacked standing to file the lawsuit because they did not show that the law would harm their citizens as a whole. The court also found that the states did not show that there was a genuine threat of enforcement by California.

The State’s promptly appealed, and yesterday, the United States Court of Appeals for the Ninth Circuit agreed with the district court. The court ruled that the States failed to establish parens patriae standing. Specifically, the Court ruled that the States failed to articulate an interest apart from the interests of an identifiable group of private egg producers who could have filed an action on their own behalf. The Court also found that:

The allegations about potential economic effects of the challenged laws, after implementation, were necessarily speculative and

The allegations of discrimination were misplaced because the laws do not distinguish among eggs based on their state of origin.

The Court did rule, however, that because in theory, the States could allege post-effective-date facts that might support standing, the complaint should have been dismissed without prejudice. This means the plaintiffs can refile (not amend) a new lawsuit alleging such facts if they exist.

So there it stands. Two and a half years after the lawsuit was filed no court has looked at the merits. The rulings have been strictly procedural.

We’ll have to wait to see where this case goes from here. Egg prices did skyrocket in 2015, but that was the year of the avian flu! We’ll keep you posted.

[i] Half of all eggs eaten by Americans are produced in Iowa, Ohio, Indiana, Pennsylvania, and California. Nearly half of California’s eggs are imported from other states. And nearly a third of those imports come from Iowa, the nation’s largest egg-producing state, whose producers sell about 1.3 billion eggs to California each year. The lawsuit had alleged that egg producers would have to spend hundreds of millions of dollars to comply with the new requirements and that consumers would foot the bill in form of higher egg prices.

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